Williamstown, MA -- (SBWIRE) -- 12/17/2009 -- The Ukrainian chemicals and petrochemicals industries have reported a modest recovery from the collapse in January when the country's gas supply was cut off, but 2009 will still be a very difficult year for producers with a deep contraction in output expected followed by a slow recovery, according to BMI's latest Ukraine Petrochemicals Report. In Q109, sales by the chemicals and petrochemicals industries totalled UAH8.76bn, including UAH6.62bn of chemicals and UAH2.13bn of rubber and plastics products. Output of plastics totalled 76,500 tonnes in Q109. However, the plastics industry has recovered from the January low, when the petrochemicals sector effectively ground to a halt during the Russia-Ukraine gas dispute. Plastics output rose 36.6% month-on-month (m-o-m) in March to 32,100 tonnes. However, for Q109 as a whole, output was still down 38.7% year-on-year (y-o-y). Despite the petrochemicals industry's recovery from the January low point, Ukraine is gripped by a severe economic downturn and prospects are dire: real GDP is set to contract by 10.2% in 2009; the banking sector is on the verge of collapse; the hryvnia is week; both external demand and credit markets have deteriorated; and international risk aversion has elevated. The Ukrainian petrochemicals market will follow the overall economic trend, which means a deep contraction in 2009, followed by a slow upturn in 2010 when GDP is expected to grow by 2.4%. With the kind of economic growth rates seen in 2000-2007 unlikely to be repeated, the petrochemicals industry will be more heavily reliant on export markets. Russian economic growth is not likely to be remarkable over the forecast period and the market is at risk of over-capacity owing to additional planned capacity due to come online. Consequently, Ukrainian producers will be more reliant on the eurozone for sales. The petrochemicals industry is set to receive a temporary domestic boost from increased construction activity ahead of Ukraine's hosting of the 2012 UEFA European Football Championship. A diversification in markets and feedstock sourcing to remove the industry's dependence on domestic and Russian demand would enhance prospects. In 2010, we expect petrochemicals output growth of 6.0%, rising to 8.0% per annum in 2011-2013, in line with the pro-cyclical nature of the industry. This means it could take four or five years to recover from the losses in H208 and 2009. Any level of uncertainty concerning feedstock as a result of repeated disputes with Russia over gas supplies will have negative consequences for the petrochemicals sector, with a shortage of feedstock for its cracker units. BMI believes that gas price hikes will lead to a downturn in ethylene output, with exports declining to zero over the forecast period. Ethylene output is expected to be in the range of 525,000-535,000 tonnes per annum (tpa) over the next five years. Cuts in ethylene output will increase dependency on PE imports, with the domestic industry lacking a ready availability of feedstock. Ukraine also looks set to become more dependent on PP imports. An improvement in the business environment and greater certainty over gas imports and prices would alleviate some of the problems facing the Ukrainian petrochemicals sector. At present, the deteriorating domestic political environment makes it unlikely that Ukraine will see an expansion in production capacity over the next two to three years.

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